Copper Falls for a Third Day in London on China Demand Concern

LONDON, Aug. 28 -- Copper declined for a third day in London, the longest losing streak in seven weeks, on concern Chinese demand may weaken as the country's government moves to curb overcapacity in some industries.

    China's State Council yesterday called on authorities to "resolutely" curb overcapacity as the economy is still in a "critical period." The nation is the world's biggest user of copper, and record imports into China have helped the metal's price to more than double this year.

    "China has been the key driver of this rally in commodity prices," Daniel Major, an analyst at RBS Global Banking & Markets in London, said by phone. "But we think as all the economic signals seem to be feeding through -- not just in China, but throughout Europe and the U.S. -- this is likely to be offset by a pickup in real demand."

    Copper for three-month delivery fell $32, or 0.5 percent, to $6,259 a metric ton by 10:22 a.m. on the London Metal Exchange. The metal for December delivery eased 0.6 percent to $2.8595 a pound on the New York Mercantile Exchange's Comex division.

    Prices slipped as the MSCI World Index of shares dropped as much as 0.2 percent, retreating for a second day. The yen rose for a third day against the euro, the longest run since July, on speculation Chinese production curbs will slow economic recovery, fanning demand for the relative safety of the Japanese currency.

    'Demand Pull'

    "The metals have been a bit overextended, driven by an increase in risk appetite," Major said. "Now the demand pull will have to do the heavy lifting for this rally to continue."

    Imports of refined copper into China more than doubled in the first half. The country's government is spending 4 trillion yuan ($585 billion) to stimulate the local economy. Shipments fell 23 percent in July from the prior month's record, the Beijing-based customs office said on Aug. 21.

    A government report due at 1:30 p.m. London time probably will show that the economy in the U.S., the second-biggest copper consumer, contracted at a faster pace in the second quarter than previously estimated, economists said. Gross domestic product shrank at a 1.5 percent annual rate, compared with the 1 percent drop reported last month, they said.

    A separate report may show claims for unemployment benefits fell for the first time in three weeks, adding to indications that the country is emerging from recession. Orders for durable goods and new-home sales gained in July, figures released yesterday showed.

    Kidd Suspension

    "Green shoots are hardly a surprise by now," Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report today. "We still need something significant to trigger a prolonged sustained rally, since the markets have run ahead of themselves and persistently good macro data alone is not enough (since a potential recovery is already priced in)."

    Xstrata Plc's Kidd site in Canada is temporarily suspending copper operations because of a shortage of concentrate, according to the company's Web site.

    Among other LME metals for three-month delivery, aluminum fell $14, or 0.8 percent, to $1,852 a ton. Indications that a plunge in demand may have bottomed have helped the lightweight metal to jump 44 percent from February's low.

    "The latest market data and trends suggest that the industry is now past the worst and that we may see a gradual improvement in demand in the second half of 2009 and into 2010," aluminum producer Vimetco NV said today.

    Lead, Tin

    Lead fell $44, or 2.2 percent, to $2,006 a ton. It climbed yesterday as high as $2,129.50, the highest intraday price since Aug. 7, on concern about closings of Chinese lead smelters. The country accounts for about 35 percent of global lead production, and crackdowns on smelters stemming from environmental protection raised concern among traders, RBS's Major said.

    "The market is reacting to what could genuinely turn into a quite serious issue should more capacity be closed," he said.

    Tin advanced $125, or 0.9 percent, to $14,000 a ton. Seven smelters run by consortium Bangka-Belitung Timah Sejahtera in Indonesia, the world's largest exporter of the metal, temporarily stopped production because of problems verifying ore supplies.

    Nickel fell 1.4 percent to $18,800 a ton, and zinc dropped 1.7 percent to $1,815 a ton.

    (Source: Bloomberg)